Securities Industry Commentator by Bill Singer Esq

February 1, 2018 
Few aspects of regulating Wall Street are more fundamental than those requiring that public customers get the best execution for their orders, particularly when the customers' orders and those of their brokerage firm are competing to get filled at the best price. The simplest way to envision this so-called trading ahead scenario is to imagine that a public customer and her broker-dealer arrive at the exact same time before the exact same door, which is only wide enough for one at a time to fit through. When that narrow opening presents itself, the default regulatory protocol is for the broker-dealer to politely step aside and graciously say "after you." Most of the time, that's what happens. Sometimes, it doesn't. When it doesn't, there are rule exemptions permitting a broker-dealer to get out of line, elbow the customer aside, and bolt through the door. As you might imagine, when such discourtesy occurs in the trading line, Wall Street's regulators don't simply accept any old excuse. If a broker-dealer wants to cite an exemption for cutting in line, the regulators want proof that the trading ahead of a customer satisfied the requirements set forth in the exemption. In a recent FINRA regulatory settlement, we see what happens when a broker-dealer cuts in front of the trading line but can't satisfy the terms of the exemption. READ

SEC Charges Two Boston-Based Investment Advisers with Fraud (SEC Litigation Release No. 24037) The SEC charged Boston-area investment advisers James S. Polese and Cornelius Peterson with defrauding clients by stealing nearly half a million dollars of client assets.Securities and Exchange Commission v. James S. Polese, et al. (United States District Court for the District of Massachusetts,  18-CV-10186) READ the FULL TEXT SEC Complaint.
In a parallel action, criminal charges were filed against Polese and Peterson.
As set forth in part in the SEC Litigation Release:

[B]eginning in 2014, James S. Polese and Cornelius Peterson, while employed as investment advisers at a large financial institution, engaged in various schemes to defraud their clients, including stealing nearly $450,000 from one elderly client. In March 2016, Polese and Peterson fraudulently misappropriated $350,000 of their client's money, using $100,000 of those funds to make investments in their own names, and directing the remaining $250,000 to Polese's personal bank account. Then, from March through May of 2017, Polese made numerous unauthorized withdrawals from the same client's account totaling approximately $93,000 to pay Polese's credit card and college tuition expenses for Polese's children.

In addition to stealing client funds, the complaint alleges that Polese and Peterson breached their fiduciary duty to their clients when they (1) secretly put client funds at risk by using a client's assets as collateral to secure loan financing for a private entity in which Polese and Peterson were investors, and (2) invested client funds into an investment in which defendants held a financial interest, without informing the client or disclosing their conflict of interest. Additionally, Polese defrauded two clients through violations of his fiduciary duties to those clients including (1) obtaining a loan from a client on unfavorable terms to the client; and (2) charging a client advisory fees 50% higher than the rate he repeatedly promised to charge her.

Ameriprise And Former Rep Battle It Out Over EFL And Defamation ( Blog)
In today's Blog we have the interesting scenario in which a disgruntled, former Ameriprise employee sues her former employer for over a million bucks. About a month later, the former employer returns the favor and sues its former employee for six figures. Underlying both lawsuits is an employee forgivable loan, and allegations of defamation and breach of contract. By the time these disputes arrive before a FINRA Arbitration Panel, there ain't much love lost between the parties. It all seems fairly cut and dry. And then our publisher Bill Singer had to go online and started poking around. On the one hand. On the other hand. Maybe. Maybe not. See how you feel about everything when you get to the end of today's blog. READ

Court Enters Consent Judgment Against Richard A. Bailey (SEC Litigation Release No. 24036)
The United States. District Court for the District of Delaware entered a consent judgment against Richard A. Bailey, a former officer of GH3 International, Inc., who the SEC alleged had participated in a pump-and-dump scheme involving GH3's common stock, generating more than $700,000 of illicit proceeds for Bailey and seven other named defendants involved in the fraudulent scheme. 
Without admitting or denying the allegations, Bailey consented to a permanent injunction from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 5 and 17(a) of the Securities Act of 1933; barring him from participating in any offering of a penny stock; and barring him from serving as an officer or a director of a public company.

Few articles published in the Blog attracted more attention than FINRA Gets One Last Slap In Marine Veteran's Face ( Blog, July 31, 2017) 
In that article, we discussed the plight of Richard S. Botkin, a 15-year Marine Corps veteran, a registered representative since 1986, and  author of "Ride the Thunder-A Vietnam War Story of Honor and Triumph." Botkin had appealed to FINRA for reconsideration of the four-month suspension and $15,000 that the self-regulatory-organization had imposed upon him pursuant to a settlement for his alleged violation of the self-regulator's Private Securities Transaction Rule. involving his participation in a production company designed to create a documentary film about his book. In telling Botkin's story, the Blog posted this brief biography about him from the Allegiant Giving Corporation's (a 501(c)(3) nonprofit organization) website's "Our Team" page:  


A former Marine Corps infantry officer (active service with 2nd Battalion, 7th Marines and 1st Reconnaissance Battalion), Richard Botkin served 15 years of combined active and reserve duty. 

Rich and his wife have been married for 32 years and they have two adult sons.   He is also the author of the book "Ride the Thunder-A Vietnam War Story of Honor and Triumph."   The book is currently on the Commandant's Reading List.    

Since 1998 Rich has been involved in annually leading short-term dental / medical missions to Cambodia where they work with Agape International Missions-an organization dedicated to ending the sexual trafficking of young children-and other in-country Christian missionaries to provide basic relief for the poor and hurting of that country.  

In addition to the notion of aiding those who have selflessly served our nation, Botkin subscribes completely to the Allegiant Battle-concept of not just giving assistance to our veterans, but helping them to become the successful, productive members-and business LEADERS-of society they were created to be.   He refers to the old proverb: "Give a man a fish and you feed him for a day. TEACH a man to fish and you feed him for life." This idea and model-combining entrepreneurial opportunities with strategic mentoring-brought to the table by Mark Haney, is something which will not only resonate with the veterans we intend to serve, but also the larger American public which will support and bless these efforts. Blog is pleased to inform its readers that Richard's film "Ride the Thunder - A Vietnam War Story of Victory & Betrayal" is now available on Amazon Prime:

Incredible True story of American military legend John Ripley and Vietnamese war hero Le Ba Binh & their fight against the communists during the Vietnam War. When the war ends, Ripley goes home & passionately tries to tell the truth of the war to a divided America while Binh is imprisoned & struggles to stay alive in re-education camp while their wives valiantly cope. Rotten Tomatoes 89%

To those readers who asked how they could help Botkin and send a message to FINRA, please visit the Amazon webpage "Ride the Thunder - A Vietnam War Story of Victory & Betrayal" Watch the film on Amazon Prime for free or buy or rent it. Add your message in the "Customer Reviews"